Why Is Energizer (ENR) Up 6.3% Since Last Earnings Report?
A month has gone by since the last earnings report for Energizer Holdings (ENR). Shares have added about 6.3% in that time frame, outperforming the S&P 500.
Will the recent positive trend continue leading up to its next earnings release, or is Energizer due for a pullback? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at the most recent earnings report in order to get a better handle on the important catalysts.
Energizer Q3 Earnings Beat Estimate, Organic Sales Up Y/Y
Energizer reported third-quarter fiscal 2024 results, wherein its top line lagged the Zacks Consensus Estimates but the bottom line surpassed the same. However, both metrics increased year over year.
Q3 Metrics
Energizer’s adjusted earnings of 79 cents per share beat the Zacks Consensus Estimate of 67 cents per share. Also, the bottom line increased 46.3% from the year-ago quarter’s reported figure.
The company reported net sales of $701.4 million, which lagged the Zacks Consensus Estimate of $705 million but increased 0.3% from the year-ago quarter’s reading. Organic sales increased 1.2% year over year in the fiscal third quarter.
The volume increase in Battery & Lights contributed 3.6% organic growth attributed to improved category trends and expanded global distribution. Similarly, the Auto Care segment experienced a 1% organic growth, fueled by favorable refrigerant sales resulting from warmer weather and gains in international distribution.
However, these increases were partially offset by a 3.4% decline in pricing, primarily within Battery & Lights, which was the result of planned strategic pricing and promotional investments in the fiscal third quarter.
Segments in Detail
Revenues of Energizer's Batteries & Lights segment dropped 0.4% year over year to $509.1 million. We note that segmental profit increased 6.2% to $129.4 million.
Meanwhile, revenues in the Auto Care segment rose 2.2% to $192.3 million from the year-ago period. Also, we note that segmental profit increased sharply 54% to $26.8 million.
Margins
In the fiscal third quarter, Energizer’s adjusted gross margin expanded 270 basis points to 41.5%. The improvement in adjusted gross margin was primarily due to two factors. First, Project Momentum initiatives generated savings of approximately $14 million in the quarter. Second, there was a reduction in input costs, including better commodity and material pricing and lower ocean freight expenses. However, these gains were partially offset by the planned strategic pricing and promotional investments.
Excluding restructuring costs, adjusted SG&A expenses increased 4.5% year over year to $118.4 million. This increase was driven by higher labor and benefit costs, increased travel expenses, greater depreciation related to digital transformation initiatives and rising legal fees. However, this increase was partially mitigated by approximately $7 million in savings from Project Momentum.
Adjusted SG&A costs, as a rate of net sales, were16.9% compared with the 16.2% recorded in the prior-year quarter.
Adjusted EBITDA was $149.7 million, up 18.1% year over year, whereas the adjusted EBITDA margin increased 320 basis points to 21.3%.
Other Financial Details
As of Jun 30, 2024, Energizer’s cash and cash equivalents were $146.7 million, with long-term debt of $3.21 billion and shareholders' equity of $123.4 million. As of the fiscal third quarter, ENR paid down $150 million of debt. At the end of the quarter, the company’s net debt to adjusted EBITDA was 5x times. The operating cash flow as of the fiscal third quarter was $260.7 million and the free cash flow was $195.1 million.
Outlook
For fiscal 2024, Energizer expects organic revenues to be down roughly 2%. The company anticipates its adjusted EBITDA between $610 million and $620 million, with adjusted earnings per share between $3.20 and $3.30. It anticipates the gross margin to improve more than 150 bps year over year. The metric increased more than 100 basis points from its previous estimation, primarily due to incremental project momentum savings and improved input costs.
For the fiscal fourth quarter, organic revenues are expected to be flat and adjusted earnings per share are anticipated to be in the range of $1.10-$1.20.
Project Momentum is on track with total savings likely to be in the band of $180-$200 million over the life of its program. Cash costs to accomplish savings are anticipated to be in the range of $150-$170 million. For fiscal 2024, expected savings from Project Momentum are pegged at $80-$90 million, with one-time cash costs in the range of $70-$80 million.
How Have Estimates Been Moving Since Then?
In the past month, investors have witnessed a downward trend in estimates revision.
The consensus estimate has shifted -6.02% due to these changes.
VGM Scores
Currently, Energizer has a nice Growth Score of B, a grade with the same score on the momentum front. Charting a somewhat similar path, the stock was allocated a grade of A on the value side, putting it in the top 20% for this investment strategy.
Overall, the stock has an aggregate VGM Score of A. If you aren't focused on one strategy, this score is the one you should be interested in.
Outlook
Estimates have been broadly trending downward for the stock, and the magnitude of these revisions indicates a downward shift. Notably, Energizer has a Zacks Rank #1 (Strong Buy). We expect an above average return from the stock in the next few months.
Performance of an Industry Player
Energizer belongs to the Zacks Consumer Products - Staples industry. Another stock from the same industry, Newell Brands (NWL), has gained 4.3% over the past month. More than a month has passed since the company reported results for the quarter ended June 2024.
Newell Brands reported revenues of $2.03 billion in the last reported quarter, representing a year-over-year change of -7.8%. EPS of $0.36 for the same period compares with $0.24 a year ago.
For the current quarter, Newell Brands is expected to post earnings of $0.16 per share, indicating a change of -59% from the year-ago quarter. The Zacks Consensus Estimate has changed +0.1% over the last 30 days.
The overall direction and magnitude of estimate revisions translate into a Zacks Rank #3 (Hold) for Newell Brands. Also, the stock has a VGM Score of A.
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